Story No. 2:

Judge considers dismissal in Silicon Valley espionage case

RACHEL KONRADAssociated Press

Oct. 21, 2003

SAN JOSE, Calif. - A federal judge will soon decide whether two Silicon Valley businessmen from China should stand trial in an economic espionage case that could have important implications for the technology industry.

Attorneys for the U.S. government argued Monday that San Jose-area businessmen Fei Ye and Ming Zhong tried to board a plane to China with suitcases allegedly crammed with data from technology companies. Prosecutors said the men stole trade secrets from Sun Microsystems Inc., NEC Electronics Corp., Transmeta Corp. and Trident Microsystems Inc., and planned to start a microprocessor company with the Chinese government.

Defense attorneys countered that their clients' suitcases contained routine reference materials any engineer might carry - and that if the men possessed trade secrets, they didn't know it. The attorneys questioned the very meaning of a trade secret under federal law, claiming that the Economic Espionage Act of 1996 was so vague that it was unconstitutional.

U.S. District Judge James Ware said Monday he would consider the defense's motion to dismiss the case. The defense also requested preliminary hearings to better define the nature of the alleged trade secrets.

Ware is likely to issue a written decision on the dismissal within a week. But he reserved every working afternoon in June and July for a jury trial in case he decides it has merit.

The lawsuit could have sweeping implications for the technology sector. A PricewaterhouseCoopers study determined that trade secret theft costs the nation's 1,000 largest companies more than $45 billion per year, but few executives know when data has been stolen - and even fewer are willing to admit it.

If a rival or startup gains access to a company's confidential information - such as design specifications or proprietary software code - entire product launches or business strategies at the victim company could be spoiled.

But there's little case precedent from the Economic Espionage Act of 1996 to help define what constitutes a trade secret. Some judges say something is a trade secret if it's kept under locks - such as the recipe for Coke.

But Ware wondered whether disparate pieces of software code freely available for employees on a company's intranet was a trade secret, or whether a discarded microchip or design specification not clearly labeled "confidential" was a trade secret.

"This is an unusual case because it seems to me that it's a matter of opinion what constitutes a trade secret," Ware said in his San Jose courtroom. "It's not as if most things are stamped 'trade secret.'"

Hundreds of nearly 3,200 pages of documents involved in the case are under seal because they contain confidential data about microchip designs. Defense attorney John Williams had to refer to one incident by page number to avoid providing details of the items in question to several dozen people in the courtroom.

According to public documents, Ye, 37, a naturalized U.S. citizen and former Transmeta employee, and Zhong, 36, a permanent U.S. resident, tried to board a flight to China from San Francisco International Airport in November 2001 with microchip designs and at least $10,000 in equipment.

Prosecutors say they intended to use stolen data to start a company called Supervision Inc. or Hangzhou Zhongtian Microsystems Co. - a joint venture with the Chinese city Hangzhou.

The men's attorneys argued that their clients did not violate laws - and prosecutors have bombarded them with data but have not specified how or why the men's documents constituted trade secrets.

China's Consulate General in San Francisco said there was "no link or connection" between the men and the Chinese government.

If convicted, Ye and Zhong could face up to 95 years in prison and $3 million in fines on 10 criminal counts.